Why shareholders selling Flight Centre Travel Group Ltd might regret it

Flight Centre Travel Group Ltd (ASX: FLT) has seen its share price sink as much as 7% down as low as $33.66, after confirming one of the market’s worst kept secrets.

A number of analysts have pointed out that language used by the company in previous updates suggested the company would struggle to meet its target of between 4% and 8% growth in pre-tax profits (PBT) for the full year.

In Early May, the company said it “has maintained its commitment to investing in its longer term growth strategies, in a challenging trading climate that has impacted short-term results.

It also said, “Targeted growth range not a formality given investments made to drive longer term returns & uncertain trading conditions heading into key May-June booking periods.

Flight Centre also warned that trading conditions in Australia were soft, with “cautious leisure travellers, election & budget uncertainty may affect demand during Q4 and Virgin Australia Holdings Ltd (ASX: VAH) and Qantas Airways Limited (ASX: QAN) responding to uncertainty by cutting domestic capacity.

CEO Graham Turner also warned in February after releasing the first half results that “establishing a new profit milestone will not be a formality given our size, the strategic investments we are making and the volatile conditions in some geographies heading into our peak booking months.” [emphasis mine].

Mr Turner also noted, “consumer confidence in Australia has not yet recovered from the cyclical downturn late in the 2014 fiscal year and outbound travel from Australia has grown at a slower rate than normal.

Today the company confirmed that consumer and business confidence was weaker in Australia, airfare price wars would hamper the company’s ability to hit some supplier targets and the US leisure travel results have not met expectations. As a result, Flight Centre has downgraded PBT to between 2% and 5% below last year’s result.

However, all the factors listed by Flight Centre appear to be temporary, and this is certainly nothing to fear for long-term shareholders.

In fact, the company’s diversification and a staggering array of new products and offerings appear to set it up for a very healthy future.

Flight Centres business May 2016

Source: Company reports

Foolish takeaway

Flight Centre is much more than a ‘vulnerable’ bricks-and-mortar travel agent these days. Nearly half of the company’s total transaction value (TTV) is booked outside Australia, and 49% of Australian turnover comes from the Flight Centre brand. Additionally, 35% of TTV comes from the company’s 6 corporate brands.

Today’s share price crash is likely to be temporary and investors might look at a share price of $33.55 as a rare gift.

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Motley Fool writer/analyst Mike King owns shares in Flight Centre. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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